POP: Intero Capital Solutions

Real World Assets Pool Onboarding Proposals (POP)
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Overview:
Business Name : Intero Capital Solutions LLC
Current AUM : N/A
$ Volume of Transactions Completed Last 12 months : 2021: USD 71,000,000
$ Volume of Transactions completed by Founding Team: circa USD 2,000,000,000
Target Launch Date : 30 June 2022
Location and Team Size : USA / UK, 7
Years in Operation : Intero Capital Solutions: 1 year
Founding team: 5 years
Historical Loan Tape (years) : 9 years
Key Professional Partners :
Legal: Lindabury, McCormick, Estabrook & Cooper, P.C. (Intero Trading)
Accounting: Guillen Pujol CPA (Intero Capital Solutions)
Operational: Wired Back Ltd (Re-Insurance)
Operational: Citadel SPV LLC (Issuer Governance)

Strategy:
Intero Capital Solutions LLC (“ICS”) is a provider of working capital solutions with a primary focus on supply chain finance. Our primary offering, a Buyer-led accounts payable solution, delivers a flexible solution for our Clients/Buyers, enabling early supplier settlement to unlock working capital within their supply chain. The focus on Buyer-led, as opposed to Supplier-led, solutions allows us to develop a deep understanding of the Buyer’s business and the opportunities that additional working capital may deliver to their organisation, whilst simultaneously derisking our funding solutions by selecting Clients with strong credit profiles.

The facilities offered to our Buyers revolve on a rolling basis, generally every 90-120 days, providing the community with ongoing opportunity to participate within the liquidity pools deployed on Centrifuge. Our focus on originating high quality, risk-mitigated assets from various sectors and jurisdictions will further diversify the opportunities currently presented to the investment community on Tinlake, helping to improve the overall resilience of the DeFi ecosystem in which Centrifuge operates.

By providing DeFi liquidity to real world borrowers through flexible working capital solutions and combining them with Traditional Finance (“TradFi”) mechanisms which we have confidently utilised previously, such as credit insurance, we are uniquely positioned within the market to serve the borrower, the lender, and the DeFi ecosystem while not compromising on the quality of the assets being originated into the liquidity pool funding mechanisms.

ICS has raised sufficient equity investment to develop its product offering with additional debt and/or equity to be raised if needed. Our income is derived through a Service Level Agreement (SLA) with Intero Trading LLC (“ITR”), the independent asset originator for the liquidity pool, incentivizing ICS to deliver quality origination, risk management, and back-office solutions for ITR. ICS has an initial focus on originating facilities between USD 750,000 and USD 5,000,000 with an annual cost to the Buyer of between 12% and 20%. Larger facilities at lower rates are also considered and are assessed on a case-by-case basis.

ITR has sourced direct investment for the junior tranche (TIN) of circa USD 1,500,000 to date with a target of USD 5,000,000 in the medium term as a combination of debt and equity. This capital is sourced from high net-worth individuals and institutions seeking non-market correlated returns. These investors have also been invited to participate in the senior tranche (DROP) depending on their individual risk mandates and appetites. Our investor network continues to grow as we build out the product offering and move closer to the launch date of the liquidity pool.

Our approach to DeFi is based on our belief that the current TradFi markets and products could benefit from the efficiencies and opportunities created by the rapid advances seen within the blockchain and cryptocurrencies industry. Similarly, by providing quality asset origination, borrowers currently served by TradFi can enhance the DeFi ecosystem through diversification of the asset collateral currently offered to investors. Centrifuge provides the platform on which these two marketplaces can be effectively combined and the benefits for both realised in a professional environment that is simple and intuitive to use.

ICS is structured to decentralise its risk decision making through its relationship with ITR by inviting its equity investors to participate in credit committee assessments. This collaboration gives representation to those entrusting ICS to deliver on its mandate and strengthens the objective and subjective assessments performed on the originated assets. While different in structure, this echoes the sentiment of the Centrifuge community and its move towards becoming a DAO. The recent developments of the Centrifuge protocol, notably securing a parachain on the Polkadot network, confirm to ICS that Centrifuge is a forward-looking community with significant ambition and provides a solid foundation for ICS to deploy its solutions and scale up over the coming years.

Structure: Risk & Terms

The key risk associated with the ICS offering is credit risk. ICS has developed a comprehensive credit risk management policy to address the following areas:

  • Establishing an appropriate credit risk environment.
  • Managing the credit activities of ICS using prudent credit criteria.
  • Maintaining an appropriate credit administration, measurement, and monitoring process.
  • Clearly defining the roles and responsibilities of the different parties within ICS.
  • Reviewing all significant exposures on an ongoing basis.
  • Overall review of ICS’s Buyer portfolio on a regular basis.
  • Overseeing ICS’s reputational risk.
  • Credit Insurance used to protect the funds deployed when applicable.
  • Regular and ongoing Buyer assessment.
  • Various forms of collateral (entity and/or individual level).

Pool Size & Pipeline:
At Launch: USD 10 million
6 Months after Launch: USD 20 million
12 Months after Launch: USD 40 million
Origination Pipeline Details: Based on existing relationships with Buyers and a deep global professional network ably feeding ICS’s new Buyer pipeline.

Asset & Rates:
Asset Type(s): Trade receivables
Average Ticket Size: USD 400,000
Average Asset Maturity: 120 days
Expect Default Rate: < 1%
Expected borrowing rate on senior tranche (on-chain): 4% - 6%
Expected lending rate to end borrower (off-chain): 12% - 20%

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Hi @DarrylSteyn,

Thank you for your proposal to onboard as a pool on Centrifuge!

Could you please expand on the two criteria below:

3: Strong Pipeline: 12 month forecast that is 2x “Pool Value in 1 Year”

It would be great if you could clarify the 12 month forecast with specific figures.

7: DROP Tranche: Pool Manager is able to fund a portion of the DROP tranche (insert how much)

You write that your investors have been invited to participate in the senior tranche (DROP) - could you please clarify if that means that they/you will be funding part of that tranche? Preferably with amounts if possible.

Thank you.

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Hi @Rhano,

Regarding the 12-month forecast, we are indicating growth from $10m at launch to $40m at the end of year one, representing a 4x multiple on the original pool size. Our medium-term ambition is to replicate this growth in years 2 and 3 to take the total pool size to circa $120m at the end of year 3. The liquidity pool at this point would consist of diverse accounts receivable assets turning three times a year to deliver a $360m annual turnover which we feel is an achievable target and within our capabilities (this is based on our previous experience of managing similar sized portfolios in TradFi).

Our origination mechanisms are based on our extensive network of global originators who are well established and understand our lending and risk criteria and direct approaches to Intero.

Please see the below representations of our onboarding pipeline over the next 12 months and how this grows the total portfolio to meet the 2x requirement.

Onboarding Pipeline
Onboarding Pipeline2601Ă—1562 139 KB

Portfolio Growth
Portfolio Growth2602Ă—1562 126 KB

Jurisdiction Breakdown
Jurisdiction Breakdown1952Ă—1302 98 KB

For your second question, our primary focus has been on raising the junior tranche; however, we have explained to the investors that they can participate above their TIN contribution with a buffered loss position by simply onboarding with Centrifuge directly.

Thanks

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Thank you very much for taking the time to provide further clarification @DarrylSteyn!

It is much appreciated.

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Hi Centrifuge Community,

We would like to share the below-linked information pack that provides more detail about Intero and the opportunity we are developing.

Intero Information Pack

Regards

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The Centrifuge community has reviewed the POP for Intero Capital Solutions, based on the 10 criteria, and the result is: :seven: / :ten:.

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POP Review DCM: Intero Capital Solutions

Hi I’m Mike, the Founder of DeFi Capital Markets (“DCM”), an entity in the Centrifuge community that is focused on building the future of decentralized capital markets by onboarding institutional investors, assets and infrastructure to the DeFi ecosystem. Previously I was a core member of the Centrifuge team and we at DCM are currently contributing to the Centrifuge, RWA Market (Aave) and MakerDAO ecosystems. The current, and future, employees of DCM are largely from institutional investment and credit backgrounds and we intend to provide views on proposed pools coming through the POP process. Our views do not amount to financial advice and nothing contained in this post constitutes a solicitation, recommendation or endorsement of any investment. Community members should do their own independent research.

Macro conditions have broadly deteriorated broadly across markets as inflation has reached a multi-decade high and has spurred a more aggressive Fed policy. The resultant rise in interest rates has driven a sharp sell-off of global financial assets, crypto being no exception. DeFi liquidity has contracted markedly in the last few months, and recently we have witnessed several large scale insolvencies that have shaken confidence in the sector. As deFi investors retreat and significant swathes of capital are erased from the ecosystem it makes for a notably difficult backdrop to raise new financing. That being said, real-world assets tied to productive cash flows outside the crypto ecosystem offer investors a new avenue to generate yield in a more sustainable fashion. Given the financial conditions, investor appetite for new endeavours is expected to remain limited for the time being, however we are optimistic this could improve once the dust settles and RWAs may become an emerging trend.

Intero appears to have a long track record of origination in the supply chain finance space, which brings us confidence. The short-term nature of the facilities (120 days avg) should be reasonably attractive given that liquidity is currently a major focus in the market. The senior financing rate also looks appropriate given the inputs and market comps. Although we are highly encouraged by the $1.5M in committed junior funding, we at DCM remain cautious on the availability of ~$8M in senior financing given the aforementioned market conditions.

We would suggest the following questions for the pool party:

  • Can you please provide more details on the proposed pool structure, including net financing rate and desired advance rate?
  • Is there a prospect of raising some portion of the senior financing from existing investors?
  • Given you have raised traditional financing in the past, why DeFi now?
  • How confident are you in your growth plans, is this existing business you would be willing to bring on-chain after the model is proved or prospective business?
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@thespaceacatjr, thank you for the feedback and for sharing your views on current and future market conditions; interesting times indeed. The opportunity and argument for RWAs to support DeFi can benefit from the current climate, and we remain committed to this space.

The questions raised are noted, and we will address them during the pool party :+1:

Thanks!

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POP Review k/factory: Intero Capital Solutions

Hello I’m Jeannice, Partner and Portfolio Lead at k/factory, the core team building Centrifuge. I come from a TradFi background - bond syndication, FX trading, product and quant, etc. and have been working with current and potential issuers since I’ve been at Centrifuge. I’m writing this together and on behalf of the k/factory business development team, and we intend to provide views on proposed pools coming through the POP process. Our views do not amount to financial advice and nothing contained in this post constitutes a solicitation, recommendation or endorsement of any investment. Community members should do their own independent research.

Firstly, I apologize that we are a day late on this post; this should have been posted on yesterday, 5 days after the criteria score posting. Secondly, Mike has provided a good overview of the recent macro conditions, so I will not repeat his points here. While we believe in the future of RWAs and that RWAs should in fact provide good diversification with uncorrelated assets from crypto, the truth is that we exist within the larger DeFi, and crypto ecosystem.

We like that the average tenure is quite short (120 days), and that buyers get to decide which approved suppliers are to benefit from the facility. The founding team has also worked together for 5 years. $10M at launch looks reasonable given the size of DeFi balance sheets and a 4X AUM makes sense over 12 months. It also looks like Intero actively manages the credit risk portfolio throughout the lifecycle of a facility, although how that is done is a question that I have (including in my questions below).

We would suggest the following questions for the pool party:

  • The range of size ($750,000 to $5,000,000), and rates (12% to 20%) is quite wide. What is the weighted average for both, based on the current portfolio and also the future expected portfolio (considering pipeline)?
  • How are the larger facilities financed at lower rates assessed, and how is it different or additional to your current credit assessment process?
  • If the range of maturity is 90 to 120 days, why is average maturity 120 days?
  • Do you provide fixed or floating rate facilities?
  • Can you describe where your business comes from? I.e. % inbound referrals, % extension of current facilities, etc.?
  • Tell us more about how you actively manage your credit risk portfolio over the lifetime of a facility
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Good day!

Step 4: Forum Poll is open now and everyone is invited to vote!

Thanks, everyone for voting!

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@roollie, thank you and Mark for your constructive feedback and suggested questions, much appreciated. We are really looking forward to unpacking these and other themes during the pool party.

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Hello Community,

Grab your suit, a floatie, and a drink – we’re diving into our fourth Pool Party!

We’re excited to bring you for the first time as part of the new POP-process a pool presentation by Intero Capital Solutions! :100: :eyes:
Pool Party Details

  • Date: June 22 – 6pm CET, 12pm EST
  • Issuer: Intero Capital Solutions
  • Agenda
    • Pool Introduction
    • Interview+Q&As
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